Rising rates of chronic illnesses such as diabetes, cancer and heart disease are straining the public healthcare system in China. In addition, increasing obesity rates, extensive air and water pollution, and high smoking rates are contributing to a spike in chronic diseases. Public hospitals are the traditional diagnosis and treatment centers for average Chinese citizens, but these public institutions are struggling to meet demand in densely populated cities like Guangzhou, Shanghai and Beijing.

While the government claims that nearly 100% of Chinese patients have some form of health insurance, underfinanced state programs have forced many patients to pay for expensive treatments themselves, which in some cases is impossible. Some patients resort to bribery in an effort to secure the best care and treatment for their loved ones. Given the discontent with the public hospital system, a number of high-profile violent attacks on doctors and nurses have even been carried out by Chinese patients over the last year.

Government-led Initiatives, More Private Hospitals

In an effort to ease the burden on public hospitals, the Chinese government has begun encouraging investment in private healthcare facilities. According to a June 15, 2015 report by Bloomberg Business, China’s State Council is leading a nationwide effort to encourage investment, raise funds, and streamline the approval process for private healthcare facilities. The announcement by the State Council also extended healthcare insurance to cover qualified private facilities. As a result, private facilities will not be able to reject patients unless they lack the necessary medical equipment or staff members, at least in theory.

The Bloomberg Business article also mentions that the government will attempt to encourage venture capital and financial institutions to invest in new small- to mid-sized healthcare businesses. Qualified private institutions will also be able to list shares and sell bonds to raise funds. By encouraging outside investment, the government is looking to expand private hospitals, reduce the burden on overcrowded public hospitals, and ameliorate lingering tensions that hurt the doctor-patient relationship.

According to an unnamed official cited by the Taiwanese media company WantChinaTimes, “The measures [in the State Council’s June 15 policy paper] focused on further access relaxation, expansion of financing channels, facilitating resource liquidity and joint application, and improving the development environment.” Again, the Chinese government is hoping that these measures will incentivize private sector investment and help ease the strain on public hospitals.

To encourage doctors to work in private systems, the government is attempting to institute a system whereby medical staff is given equal treatment regardless of whether they work in the public or private sector. China will also streamline an arduous approval process and modify restrictive rules that have been preventing doctors from joining private hospitals. China hopes to double its number of general doctors by 2020, as well as accelerate the incorporation of new medical technology in hospitals.

To support these new initiatives, Beijing is planning to invest in private hospitals. On October 8, 2015, the Ministry of Finance announced that China will spend around $1.5 billion to subsidize private hospital reform in 2016.

Joint Ventures

Foreign-owned companies are entering the private hospital market in a bid to capitalize on new policies, government subsidies and private investment. In May 2015, Australian-owned Ramsay Health Care and its Malaysian partner Sime Darby signed a conditional contract for a joint venture with Chinese healthcare group Chengdu Jinxin Healthcare Investment. The 50/50 partnership will fund the construction of five hospitals. An Australian newspaper reported that the five hospitals will house more than 2,300 beds and focus on women’s health, mental health and traditional Chinese medicine.

Denver-based DaVita Kidney Care is also looking to expand its operations in China by forming a joint venture kidney care specialty hospital chain in the Shandong province. DaVita is partnering with the president of Shunjing Renal Hospital, the only private hospital approved for dialysis services in Shandong’s capital, Jinan. With chronic kidney disease becoming a growing health issue in China, DaVita hopes to directly address this problem through cooperation with the Shunjing Renal Hospital. According to DaVita’s CEO of International Operations, DaVita is aiming to have two hospitals operational within the next 12 months.

Chindex, a Maryland-based company that was recently acquired by Shanghai Fosun Pharmaceutical Group Co. and its partners, is also continuing to expand its presence in China. Chindex and Guangdong Provincial Hospital of Traditional Chinese Medicine will open a full-service, international-standard hospital in Guangzhou early this year. The Guangzhou United Family Hospital is another example of foreign companies working with local affiliates to improve Chinese citizens’ access to quality private hospitals.

Potential Issues

Government initiatives, private investment, and joint ventures will increase the number of private hospitals and ease the burden on Chinese public hospitals, but there are still some obstacles hindering future expansion. The Singapore Times reported that the government’s push to improve access to private hospitals has been stymied by a perceived lack of support from the central government as well as the difficulty of entering a market dominated by public sector hospitals. Some foreign private sector companies are finding it difficult to work within the large Chinese healthcare industry that is currently dominated by complex regulations and massive state-owned hospitals.

These issues aside, the combined efforts of the Chinese government, private financial institutions, and foreign-owned companies should help ease some of the regulatory and financial restrictions that have inhibited private hospital growth on the Chinese mainland.

The Opportunity

Given these changes in China, demand for hospital furnishings and medical equipment will surge in the coming years. Medical device companies should look to provide clinic furnishings such as new therapeutic beds, exam tables, and surgical lighting. New hospitals also demand a standard set of medical equipment that includes EKG machines, electrosurgical units, stress systems, diagnostic ultrasounds, anesthesia machines, defibrillators, and patient monitors. As public hospitals upgrade their systems and new private hospitals purchase inventory and medical equipment, medical device companies will be able to benefit from increased demand throughout China.